SURPRISED BY YOUR CREDIT CARD BILL? Revisit the TOS!

This article is for those who are new to credit cards and for those who do not read the terms of service of their credit card providers.

Joan and her friends

Joan has been using her credit card for more than a year. She is prompt on paying her monthly bills because she was well aware of the high interest of credit cards. On one occasion, her friends requested her to buy them airline tickets with a promise that they will pay before the due date. She spends almost 15,000 pesos for the tickets. She warned her friends that if they don’t pay on time, she will impose to them the interest of the card.

Joan was confident that her friends would never break their promise. They have been friends for quite a long time now. A week though before the due date, one of them called her saying she can’t make it on time because of an emergency. She also guaranteed that she will pay the interest of her debt.

The due date came and she only able to collect 12000 pesos. She then said to her unpaid friend that there would be 3.5% interests that will be imposed to the REMAINING 3000 pesos. Her unpaid friend was very sorry and said that she is willing to pay the 105 pesos interest. After a week, she paid Joan 3105 pesos. Joan felt relieved since all her dues are now settled.

The surprising bill!

After several weeks, the next bill arrived. To her surprise, an interest amounting to 500 pesos was charged to her. How come? She already paid the majority of her dues. Is it a mistake by the credit card provider? She quickly called the card provider and asks them about the unexpected charge that she received.

The Terms of Service (TOS)

After talking to the customer representative, she pulls out the terms of service (TOS) document and confirmed everything that the agent told her. THE INTEREST RATE WAS NOT BASED ON THE REMAINING BALANCE BUT ON THE AVERAGE DAILY BALANCE (ADB) OF THE CARD. She learned this rule the hard way.

THE LESSON

Read the terms of service (TOS) for anything with regards to money. I don’t know if terms of service documents are really intended to look tedious to read but most of them are. The way they are presented was really not enticing to read and the document itself is usually technical in nature and you may think it is only for lawyers. But for your own good, read it and ask/research if you don’t understand something.